What Happens When the Buyer Doesn't Really Have the Cash?
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I had an interesting transaction this month and I thought I would share it because it is good information for sellers, buyers and agents. I had the good fortune to obtain a Â listing on a duplex in the Poly High School area, just off of Orange Avenue and PCH. Â The structures were in such bad condition that we felt a bank's appraisal would surely kill any deal. Therefore we marketed it from the beginning to investors who were able to do a cash purchase and gave it a list price of $229,000. We ended up with about ten offers all showing either enough money in a bank account or a high line of credit allowing for an all cash transaction.
Our call out for "highest and best" offer was won by an LLC who offered $249,000 without any contingencies, such as appraisal or inspection. Â Once we had opened escrow the buyers dropped the news that they were in fact getting a loan. Granted it was what we call a hard money loan but still the lender was sending out for an appraisal and it wasn't cash in the bank as promised. So the question became, what's my seller's recourse?
After calling the California Association of Realtors' Â legal hotline and also fortuitously taking a training class on purchase agreements the same week , I discovered there is nothing the seller can do. If the buyer is able to close the deal without costing the seller any additional time or money they are free to use any type of financing they wish. On the other hand, if this switch does cost either time or money, the seller would be fully within their rights to, one, cancel the contract, and two, perhaps even keep the seller's deposit.
This holds true for conventional loans switching to FHA, or a 20% downpayment loan switching to 5%, or a fixed-rate to an adjustable. As long as the buyer removes his contingencies on time, closes on time and doesn't charge the seller for any lender required repairs or fees under their new loan agreement, the seller cannot cancel the agreement.
Have other questions concerning real estate? Â Call me anytime at 562-243-2171. If I don't have the answer I won't rest until I get it right.